Is the US Phillips curve stable? Evidence from Bayesian vector autoregressions*

It has been claimed that the fall in US inflation during the Great Recession was surprisingly small. One possible explanation for this is that the Phillips curve is unstable and that its slope was lower around the Great Recession. We investigate the importance of time-varying parameters using Bayesian vector autoregressions for inflation and unemployment. We find support for time variation in the inflation equation and an unstable Phillips curve that was somewhat flatter between 2005 and 2013. However, conditional forecasts mostly suggest that inflation was not unexpectedly high around the Great Recession, which puts the claim of a “missing disinflation” into question.